Quick Facts

Turkmenistan’s economic freedom score is 41.4, making its economy the 172nd freest in the 2015 Index. Its score has declined by 0.8 point since last year, with improvements in freedom from corruption, trade freedom, and the control of government spending outweighed by a combined decline in labor freedom, monetary freedom, and fiscal freedom. Turkmenistan is ranked 41st out of 42 countries in the Asia–Pacific region, and its overall score is significantly lower than the world and regional averages.

Turkmenistan is one of the world’s most closed and most centralized countries. Apart from natural gas exports, it engages little with the outside world, and a large proportion of its society lives in poverty. Since 2011, economic freedom in Turkmenistan has declined by 2.2 points, reflecting a further worsening of already strict labor rules and increasing inflation.

Turkmenistan ranks last in the world for its investment regime, and state-owned enterprises dominate much of the domestic economy and formal sector. The executive controls all three branches of government, making judicial independence impossible. Corruption and nepotism limit the economic prospects of those who are not well connected.

Background

In 2012, President Gurbanguly Berdymukhammedov was re-elected to a second five-year term with 97 percent of the vote in elections that international observers regarded as flawed. The presidency tightly controls all three branches of government, the economy, social services, and the mass media. Berdymukhammedov’s policies are somewhat more open than those of his predecessor, President-for-Life Saparmurad Niyazov, but the government still tends toward isolationism. Most statistics on Turkmenistan’s inefficient and highly corrupt economy are state secrets. Turkmenistan has intensive agriculture in irrigated oases, sizeable oil resources, and the world’s fifth largest natural gas reserves. Berdymukhammedov has encouraged some foreign investment in the energy sector, especially from Russia, China, and Iran. Turkmenistan’s gas currently accounts for around one-sixth of China’s total gas consumption, with Russia the next biggest buyer.

Corruption is widespread, and public officials often bribe their way into their positions. The president appoints and removes judges without legislative review. The legal system does not enforce contracts and property rights effectively. Laws are poorly developed, and judges are poorly trained and open to bribery. All land is owned by the government, and other ownership rights are limited.

The top individual income tax rate is 10 percent. The top corporate tax rate is 8 percent (other entities pay 20 percent under the petroleum law). Other taxes include a value-added tax and a property tax. The tax burden equals 21 percent of domestic output. Government spending amounts to approximately 15 percent of domestic production, and public debt equals 21 percent of GDP.

Regulatory codes are outmoded, and cutting through red tape often requires personal relations with government officials. The public sector provides most jobs, but the informal sector remains an important source of employment. Although some fuel subsidies were scrapped in 2014, subsidies as a percentage of GDP are still among the world’s highest. Natural gas is free to citizens.

There are no general tariffs on most imports, but the excise tax system is biased against imports. Imports face customs delays, and government procurement favors domestic firms. Foreign investors face several regulatory and bureaucratic hurdles. Foreign exchange accounts and all international transfers require state approval. The financial system is heavily government-controlled, with loans typically directed to state-owned enterprises.